The Internal Revenue Service (IRS) has plenty of forms. And with those forms come plenty of rules, which is why it’s easy to get confused or to not know where to start. For instance, reclaiming your tax credits with IRS Form 8862 isn’t a walk in the park.
The same applies to filing your Form 6251: Alternative Minimum Tax-Individuals. This IRS form determines if the taxpayer owes alternative minimum tax instead of the standard income tax. Created in 1969, the Alternative Minimum Tax is a tax system similar to the regular income tax.
To reduce their regular tax obligations, some taxpayers with higher incomes file their Form 6251 to claim certain deductions. The AMT tax form sets a limit on how much that deduction can be to ensure wealthier taxpayers will still pay an adequate amount of taxes.
If you qualify for this IRS tax form, here’s everything you need to know.
- What is the Form 6251?
- Who Is Subject to Alternative Minimum Tax?
- Where Can You Get Your Form 6251?
- How Do I Fill Out My Form 6251?
- Filing Your Form 6251
- “How Can I Avoid Paying AMT?”
What is the Form 6251?
Form 6251 (Alternative Minimum Tax— Individuals) is an IRS tax form that determines whether you’re liable to pay the alternative minimum tax. If you are, the form then calculates the amount you should pay. This IRS form adds back different tax breaks you might have claimed using your Form 1040 tax return.
The AMT tax system was enacted in 1969 to identify and collect taxes from a limited number of wealthy families and individuals who avoided paying their income taxes. It also limits the number of itemized deductions that taxpayers can claim. For example, the AMT does not allow deductions for local and state taxes. Also, taxpayers affected by the AMT can’t take the standard deductions.
Who Is Subject to Alternative Minimum Tax?
To help taxpayers determine if they’re liable for the AMT, the Internal Revenue Code offers exemptions that can be claimed by all taxpayers (against their incomes). If your income exceeds certain thresholds, you must file the IRS Form 6251 and calculate your AMT. In 2021, the IRS set the amount at the following standards:
- Single tax filers. $73,600
- Married tax filers filing a joint return with their spouse or qualified widow(er). $114,600
- Married tax filers who prefer filing a separate return. $57,300
For example, a single taxpayer who earned $75,000 would be subject to the AMT. On the other hand, if they only earned $70,000, they aren’t required to pay their AMT because their income is below the set threshold.
Where Can You Get Your Form 6251?
On the IRS website, you’ll see a link that leads to the Interactive 6251 Form. Taxpayers can complete the form online, and then download the final copy to file electronically with the IRS. You can also save the form with your tax records. The online form is also printable. Print out a blank version and complete the form by hand.
If you need help completing the form, plenty of reputable tax preparation software can simplify the process.
How Do I Fill Out My Form 6251?
The IRS Form 6251 is composed of only two pages, but they can still be daunting to fill up. Fortunately, the first page immediately informs you on whether you need to fill this form, as well as the amount you have to pay (if you do owe this tax).
The first part of the form tackles your income. The first line asks for the amount of taxable income reported on the fifteenth line of your Form 1040. Lines 2a to 2t ask about the deductions you claimed on your Form 1040. This section lists down the other reasons you are liable for the AMT.
The third line on page 1 is for “other adjustments.” This part of the form determines if you have to enter anything here. Line 4 informs taxpayers of the amount of their income that is subject to the Alternative Minimum Tax.
The second part of the form has seven lines, all of which calculate the amount of AMT owed.
Filing Your Form 6251
Once you complete your Form 6251, attach the form to your personal tax return. Don’t forget to transfer the amount of AMT you owe to your Form 1040, too. This form has a specific line that requires writing down the AMT to report your tax returns.
“How Can I Avoid Paying AMT?”
This is a common question asked by taxpayers who are often hit hard by the Alternative Minimum Tax. While the AMT was designed to catch wealthy people who avoid paying their taxes, it can also include unknowing middle-class individuals.
If you were caught in this situation, here’s how you can reduce (or hopefully eliminate) your AMT bill.
Defer Your Income for Next Year
If you can control when you’re paid or have a lumpy income, optimize your tax situation by deferring to next year. Do the same to your bonus payments since they are more flexible than your regular income. In doing so, you can avoid the AMT.
Move Your Deductions to a Different Schedule
Consider moving possible deductions to Schedule E (for partnerships, royalties, rentals and others) or Schedule C (for sole proprietors or businesses). However, this trick only works if you actually have rentals, businesses or other income that falls under one of these categories. Still, many high-earning taxpayers have their own businesses or have a sideline for income.
Give to Charity
Giving charity is also good for the heart. It can also be good for your taxes. Charitable trusts, cash donations and donor-advised funds are potential avenues for giving. Some charitable tasks (like the donor-advised fund) can bunch your contributions into a year, which offsets more income that year.
Contribute to Your 403(b) or 401(k)
If you contribute regularly to a 403(b) plan or a traditional 401(k), you can save up for retirement using your pre-tax money. If so, the funds will be as if it came from the top of your income, which reduces your total taxable income.
Form 6251 is a form that requires taxpayers that exceed certain income levels or who have claimed uncommon tax reductions to complete the form and pay the AMT. If you are required to pay your AMT and must file the form, seek help from tax pros to learn more.